Deferred Compensation Frequently Asked Questions
- What are the Plans?
- Who is eligible?
- How do the Plans work?
- Why are the Plans limited to services rendered to participants in the ODS Contract for the Oregon Health Plan?
- How much can I reduce my ODS Oregon Health Plan income?
- When are the deferred amounts payable?
- Can I forfeit my right to deferred compensation?
- May I include my employees?
- How is the money deferred under the Plans invested?
- How will the amount of my deferred compensation retirement benefit be determined?
- Does my deferred compensation account belong to me?
- Can I withdraw my account or investments made at any time?
- Is there a charge to participate?
- What are the income tax consequences of these Plans?
- How will participation in these Plans affect my other IRA, pension or profit sharing plan(s)?
- If I am an employee of a professional service corporation, can I participate?
- How do I get more information or arrange to get started?
What are the Plans?
Effective January 1, 2000 Oregon Dental Service established two (2) new deferred compensation plans for certain participating member dentists. These plans are known as the "2000 Oregon Dental Service IRC 457 Deferred Compensation Plan" (the Sec. 457 Plan) and the "2000 Oregon Dental Service Deferred Compensation Premium Plan" (the Premium Plan).
The Sec. 457 Plan is an "eligible" deferred compensation plan governed by Sec. 457, of the Internal Revenue Code. There are certain limits on how much compensation may be deferred into this plan as more fully described below.
The Premium Plan is not an "eligible" plan. However, it allows participants to defer compensation in excess of the limits that apply to the Section 457 Plan.
Who is eligible?
All ODS participating member dentists who have executed an Oregon Health Plan (OHP) participating provider agreement, who provide dental services to OHP participants, and who have chosen ODS as their dental plan.
How do the Plans work?
By executing the Voluntary Salary Deferral Agreement (there is one for each plan), you may elect to receive less current income for services you rendered to persons covered by the ODS Oregon Health Plan Contract. Thus, you reduce your current taxable income. In consideration for that reduction, ODS agrees to pay you an income when you retire in accordance with the provisions of the Plans. Any payments which remain to be paid at your death would be continued to your designated beneficiary. You may terminate your participation with respect to these plans at any time, however, you cannot receive payments until you retire.
Why are the Plans limited to services rendered to participants in the ODS Contract for the Oregon Health Plan?
Current tax law limits such deferred compensation plans to contracts where ODS is paid to deliver care on a capitated or fixed fee basis. This is different from our standard indemnity dental insurance business where ODS contracts directly with employers to pay a level of negotiated benefits for a set premium. If and when we enter into other types of allowable contracts, we will include them for deferral purposes.
How much can I reduce my ODS Oregon Health Plan income?
You can defer your ODS OHP earnings in 5% increments from 5% to 100%. Earnings deferred up to the lesser of $7,500 or 33 and 1/3% of your total ODS /OHP income is eligible for deferral into the Sec. 457 Plan, subject to certain limitations based on coordination with other retirement plans you may participate in. Deferrals over those amounts are allowed to be placed in the Premium Plan. There are no limits, in absolute dollars, on amounts that can be placed in the Premium Plan. The difference in the tax treatment between the two plans is significant and is explained below under, "What are the income tax consequences of these Plans."
When are the deferred amounts payable?
Distributions from the Sec. 457 Plan begin the earlier of retirement, disability or death, however in no case later than when you reach age 70 ½ . Distributions are allowable in the event of certain approved hardship situations. Under the Sec. 457 Plan you have the option of receiving the distribution in a lump sum or in equal installments over five years.
Distributions from the Premium Plan also begin on the earlier of retirement, disability or death. Retirement under this plan means you have attained the age of at least 55 years, cease to earn more than $10,000 a year from dentistry and have continued to render services under the standard ODS Participating Provider agreement. Distributions are paid in a lump sum.
In either plan, if you die before you receive all of your benefits, or if you die before retirement, the unpaid portion of your benefit(s) will be paid to your beneficiary.
Can I forfeit my right to deferred compensation?
Your compensation deferred under the Sec. 457 Plan is never forfeitable. You will forfeit your deferred compensation under the Premium Plan if you withdraw from the ODS Participating Dentist Agreement before you stop practicing dentistry. You can, however, terminate your OHP Agreement without risking forfeiture.
May I include my employees?
No. Employees are not eligible to participate in either Plan.
How is the money deferred under the Plans invested?
ODS chooses a list of specific mutual funds in which Participant deferred compensation accounts may be invested. Participants direct the allocation of their accounts among the funds on the list. ODS intends that the list of funds offered will comprise a broad range of investments with correspondingly different risk/return profiles. ODS reserves the right to add or remove funds from this list from time to time.
How will the amount of my deferred compensation retirement benefit be determined?
The amount you defer plus or minus the earnings and gains or losses from investments, net of administrative expenses, will be credited to the account that has been set up in your favor. When you are eligible to receive benefits under either of the Plans, the amount so credited to your account will determine the benefit you are entitled to receive.
Does my deferred compensation account belong to me?
No. The investment accounts belong to ODS. These investments are not sequestered or set aside in any way for the benefit of Plan participants. Like any other general corporate assets of ODS, they are subject to the claims of ODS's general creditors. As described above, the earnings (or losses) of the funds you defer increase (or decrease) the amount credited to your deferred compensation account(s). Your account doesn't represent any particular asset of ODS. It just measures the amount which ODS must pay you when you retire or otherwise become eligible to receive your benefit.
Can I withdraw my account or investments made at any time?
No. Deferred compensation retirement benefits are paid only when you retire or become disabled (or to your beneficiary in the event of your death). See above under "When is the income payable."
Is there a charge to participate?
No. However, your account may be assessed charges and therefore reduced by administrative, investment, and other fees necessary for the administration of the Plan. We expect these fees, if any, to be nominal.
What are the income tax consequences of these Plans?
The income tax treatment of the Plans is governed by Section 457 of the Internal Revenue Code. The Section 457 Plan is an "eligible" deferred compensation plan. Section 457 provides that compensation deferred under the Plan, and any other income attributable to the amounts deferred, is taxable only when paid or otherwise made available to the participant of other beneficiary. Therefore, if, for example, you elect to receive your benefits in a lump sum upon retirement, the entire balance of your account becomes taxable to you in the year so distributed. Alternatively, if you elect to receive your benefits in installments over a five year period, you are taxed only on the amounts you actually receive in a given year.
The Premium Plan is not an "eligible" plan. Section 457 provides that compensation under this plan is taxable for the first year in which there is no substantial risk of forfeiture of the rights to such compensation. Thus, your entire balance becomes taxable to you in the year you first become eligible to receive benefits. As such, we will distribute the entire balance in your account in the year this happens.
You should consult your personal tax advisor as to how these rules will apply to your particular tax situation.
How will participation in these Plans affect my other IRA, pension or profit sharing plan(s)?
You may participate in the Sec. 457 Plan and the Premium Plan in addition to, or instead of, an IRA or qualified Pension or Profit Sharing Plan. If you make contributions to another Sec. 457 plan, or a Section 403(b), 401(k), 408(k), or 501(c)(18) plan, there are certain limitations that are placed on the amount you defer under the ODS Sec. 457 Plan. However, no such limitations are imposed on the Premium Plan. You should carefully consult your tax advisor about any such limitations that may pertain to your situation.
If I am an employee of a professional service corporation, can I participate?
Your professional corporation cannot participate directly in either Plan. However, by adopting an appropriate resolution to your professional corporation, you could personally be authorized to perform services to ODS that qualify for the deferral and thereby defer compensation to the Plans. You should not attempt this arrangement without consulting with your personal attorney and/or tax advisor because it could adversely affect the benefits you seek from practicing in the form of a professional corporation.
How do I get more information or arrange to get started?
If you wish to enroll or ask a specific question about the program, call or write to:
ODS
Attn: Professional Relations Department
601 SW Second Avenue
Portland, OR 97204-3156
Or call Barry Rice at:
(503) 228-6554 or toll free at (800) 852-5195.